Investing with ETFs and the 200-Day Moving Average

When investing in any exchange traded fund, one should have a clear strategy in place. Instead of relying on gut feelings or fight-or-flight instincts, investors can look at the trend lines to get a sense of when they should be in or out.

For instance, Greg Harmon for Dragonfly Capital tracks the percentage of stocks trading above their 200-day simple moving average, or SMA.

Harmon points to a nine year chart, with the purple background indicating the actual movement in the S&P 500.

Investors will notice that market bottoms typically occurred when the percentage of stocks over the 200-day SMA dipped below at least 45%. With a level of 60.8 today, Harmon cautioned that “there is still room for a lot more downside.”